Regulation
Senate Bill Introduced to Ban Confession of Judgments Nationwide
December 6, 2018
Senators Sherrod Brown and Marco Rubio have called for a nationwide ban on Confessions of Judgment in response to the Bloomberg Businessweek series published last month. The bill, which would amend the Truth in Lending Act, may be named the Small Business Lending Fairness Act.
You can download the bill here
Though Businessweek has been successful in pressuring regulators to conduct inquiries into several merchant cash advance companies and the New York City marshals, authors Zachary Mider and Zeke Faux have remained notably silent on the gaping holes in their narrative. Questions posed to each reporter have yet to receive any responses.
deBanked researched the accuracy of Businessweek’s findings only to determine that two of the purported victim’s stories were not credible. In one case, a business owner that was said to have been “wiped out,” was bragging about his new luxury race car on facebook while public records revealed he was still paying himself six figures a year from the allegedly defunct company that had more than $700,000 running through its bank accounts. In another case, a victim that claimed to be selling off household furniture to buy food after a run-in with a predatory lender, turned out to be a multimillionaire TV station owner.
Who Are the New York City Marshals?
November 28, 2018
In 2017, New York City Marshal Ruth Burko earned less in poundage than she owed the city in annual fees. At 91-years old, Burko’s tenure as a city licensed judgment enforcer has finally come to an end. She technically announced her retirement at the end of 2016 but her long career began when Mayor John Vliet Lindsay appointed her in 1967. She held on to that role ever since, grossing more than $500,000/year well into her late 70s, nearly double the annual salary of current Mayor Bill de Blasio
With the exception of Burko in her last few years, just about every New York City marshal grosses more than the Mayor. A profile by Bloomberg Businessweek says that Vadim Barbarovich outperforms all 38 of his peers when it comes to earnings, but city records reveal that the title on a gross income basis belongs to Manhattan-based Ronald Moses, who earned $3.27 million last year. Moses’s haul is down from the $5 million he earned in 2010.
70-year old Marshal Martin Bienstock, meanwhile, was the first to gross more than $2 million/year, a feat he pulled off in 1998. Records show that in 2017 he was still a top performer, ranked 2nd only to Moses.
Gross figures are before expenses like staff, rent, and other normal administrative costs of running a business. A marshal’s income stems from poundage, a 5% fee tacked on to whatever amount they collect. The city takes a small cut of that in addition to an annual fee for the privilege of being a marshal. Still, many have become millionaires on the job depending on how much work they’ve put in or how much risk they’ve undertaken.
Though the marshals can effectively enforce any judgment in New York City for private litigants, a popular one is tenant evictions. Two marshals have been murdered in the course of duty, most recently in 2001 when a marshal named Erskine Bryce “was pushed over the bannister in a Bedford-Stuyvesant apartment building during an attempted eviction,” according to The New Yorker. “The culprit, a fifty-three-year-old woman who had no intention of giving up her place, then clubbed him with a pipe, doused him with paint thinner, and set him aflame.”
In 2015, one marshal knocked on a door to handle a routine tenant eviction only to be greeted by a man covered in blood. The landlord’s motionless body lie inside after being stabbed to death by the tenant unwilling to leave. The marshal immediately called 911.
A recent online story says they have also enforced judgments obtained in connection with commercial finance transactions, even where the judgment-debtor is alleged to be located outside the city limits. No law prohibits marshals from seeking to seize assets outside the state, those with knowledge of the rules say.
A spokesperson for the city’s Department of Investigation told deBanked that the marshals are regulated by the Department but that they’re not city employees.
It’s long been rumored that it helps to know someone to get the gig. Marshal Stephen Biegel, a retired police Lieutenant, for example, is Mayor Bloomberg’s former bodyguard. Biegel grossed $2.2 million last year and has consistently grossed more than $1 million each year since 2010.
91-year old Ruth Burko got the job shortly after running Mayor Lindsay’s 1965 campaign. Burko had previously been appointed a position on a Bronx Community Board and she would continue to do both simultaneously for the rest of her life. In 2014 she told the Wall Street Journal about her experience in dual roles. “The positions give me the opportunity to serve the community, my friends, and my neighbors, whom I have coexisted with for so many years,” she said.
ELFA Reacts to New Jersey Small Business Loan Bill
October 31, 2018
The Equipment Leasing Financing Association (ELFA) had its 57th Annual Convention in Phoenix in the middle of October. During the convention, ELFA’s Vice President of State Government Relations Scott Riehl left abruptly to get to Trenton, New Jersey. Why the rush? He had been alerted that there was a hearing on a small business lending bill that could have significant ramifications for his members.
“My whole goal was to find the sponsor, introduce ourselves to the sponsor and educate the sponsor as to equipment leasing in New Jersey, how long it’s been going on, and how important it is to the economy of New Jersey,” Riehl said.
The bill’s sponsor is Senator Troy Singleton who represents New Jersey’s 7th legislative district.
Speaking to the urgency of such matters, Riehl said, “You’ve got to get on the ground immediately. And that’s what we did.”
Riehl’s last minute trip across the country proved to be a fruitful one. He was able to meet Singleton that day in the hallway of the building where the hearing was being held.
While several industries have descended on Trenton to educate policymakers on the advantages and pitfalls of the proposed language, equipment leasing companies managed to carve themselves out of the bill entirely.
Reihl said that being able to point to the equipment leasing exemption in a similar California bill (SB 1235) was helpful. He and ELFA were also involved early on in making their argument against elements in the original California bill.
Having a history communicating with policymakers is also critical, Riehl said.
“The ELFA, for the better part of 25 years, has had a very vibrant state government relations division,” Riehl said. “And that makes a difference.”
Regulators Say ‘Sandboxes’ Work
October 22, 2018
At the regulatory technology (or RegTech) sessions at Money 20/20 yesterday, toy shovels seemed glaringly absent given the number of times the word “sandbox” was used. Of course, panelists were referring to a regulatory sandbox.
Nick Cook, Head of RegTech and Advanced Analytics at the Financial Conduct Authority in the UK, discussed his experience facilitating regulatory sandboxes. According to Cook, a regulatory sandbox is an arrangement between a company and a regulator where, in order to test the viability of a new business or product, the regulator grants some kind of allowance to the company for a fixed period of time in exchange for the regulator’s ability to observe carefully how the new business or technology works and behaves in the market.
“Whether you call it ‘sandbox’ or not, are you going to just talk about it, or are you going to encourage actual experimentation?” Cook posited to other regulators broadly. “Don’t kid yourself that standing still is an option.”
“I hope that states continue these sandboxes,” said Chris Camacho, President & CEO of the Greater Phoenix Economic Council.
Seated on two of the panels on regulation was Paul Watkins, who, as Civil Litigation Division Chief at the Arizona Office of the Attorney General, drafted and advocated for legislation that established the first Fintech Sandbox in the US. Watkins said that coordination between the federal and state regulators will be important moving forward.
One of the panelists was Melissa Koide, CEO of FinRegLab, a research organization that is designed to test new technologies to inform public policy, much like a sandbox.
“Regulators have anxiety about liability if something goes wrong,” Koide said. And she that therefore dialogue among regulators is very helpful, especially the ability for regulators to learn together.
“Regulators can’t innovate if they can’t experiment,” said JoAnn Barefoot, who moderated a few of the sessions. Barefoot is the co-founder of Hummingbird Regtech, a platform for anti-money laundering.
How Regulators Like to Be Approached
October 22, 2018
On the first day of Money 20/20 yesterday, a panel of current and former regulators discussed how the regulatory environment can help emerging fintech companies and how the leaders of such companies ought to interact with regulators. “How do regulators want to be approached?” was a question presented to the panel.
“The first person I hear from I don’t listen to,” said Paul Watkins, Director of the Office of Innovation for the U.S. Bureau of Consumer Financial Protection (BCFB). He clarified with deBanked after the panel discussion that this is in reference to his previous regulatory role as Civil Litigation Division Chief at the Arizona Office of the Attorney General. He said that this “first person” he doesn’t listen to refers to the lobbyist. Watkins continued: “The second person might have something interesting to say and the person who is quiet maybe knows what’s going on, and I’m interested to learn from them.” The “second person,” he explained, might be the CEO of a company and the “quiet person,” he said, would often be a non-senior level employee at a company who really sees what’s happening on the ground level.
Melissa Koide, who once served as the U.S. Treasury Department’s Deputy Assistant Secretary for Consumer Policy, said that she always appreciated hearing directly from the innovators themselves about their relationships with banks.
“It can be valuable to make trips to [visit regulators,]” Koide said.
Koide is now CEO of FinRegLab, a financial services research organization that examines how technology and data can help achieve public policy that leads to a more efficient and inclusive marketplace.
Chris Camacho, President and CEO of the Greater Phoenix Economic Council said that elected officials want to hear from industry leaders.
“Engage [legislators] thoughtfully and educate them,” Camacho said.
NJ Legislature Aims to Classify Merchant Cash Advance as a Loan in New Disclosure Bill
October 15, 2018
S2262 in New Jersey, a bill to require disclosures in small business lending, was amended this afternoon to define merchant cash advances as small business loans for the purposes of disclosure.
Banks and equipment leasing companies are exempt from the bill.
You can listen to the hearing here. Debate on S2262 begins at the 6 minute, 12 second mark.
The bill’s author (image at right) is Democratic Senator Troy Singleton who represents New Jersey’s 7th legislative district.
Testifying on Monday’s hearing against the bill were Kate Fisher of the Commercial Finance Coalition and PJ Hoffman of the Electronic Transactions Association.
New Jersey Moves to Regulate Small Business Loan Disclosures and Brokers
October 15, 2018A committee within the New Jersey State Senate convened today at 1:30pm to discuss S2262, a new small business loan disclosure bill. Similar to SB1235 in California, this bill would require all of the following on small business loan contracts less than $100,000:
The APR(This was removed during the committee hearing)- The annualized interest rate
- The finance charge
- The maximum credit limit available
- The payment schedule
- A list of all broker fees and a description of the broker’s relationship with the lender and any conflicts of interest the broker may have
- These terms must be presented before a business accepts a loan
In addition, any change to the terms that would significantly affect the responsibilities or obligations of the small business concern under the loan must be noticed 45 days in advance.
During the hearing, the bill was amended to define merchant cash advances as small business loans. Kate Fisher of Hudson Cook, LLP who represented the Commercial Finance Coalition (CFC) during the hearing, strongly opposed that amendment. The CFC is a trade association representing small business lending and MCA companies.
Also testifying against it was PJ Hoffman of the Electronic Transactions Association. Other Trade groups are gearing up to oppose the bill as well, deBanked has learned.
The bill was voted through the committee and will continue to move forward.
Kate Fisher’s testimony has been transcribed below:
Senator Pou and committee members: Thank you for the opportunity to present testimony today regarding business loan disclosures.
My name is Kate Fisher and I am here today on behalf of the Commercial Finance Coalition, a group of responsible finance companies that provide capital to small and medium-sized businesses through innovative methods. I also am an attorney who helps providers of commercial financing comply with state and federal law.
The Commercial Finance Coalition supports efforts to make business financing more transparent.
The problem is the proposed amendment would define a merchant cash advance as a loan. A merchant cash advance is not a loan.
We all know how a loan works – the lender advances money and the borrower promises to pay it back.
A merchant cash advance is a factoring transaction, in which a business sells a percentage of its future receivables at a discount.
Take for example, a pizza shop. The pizza oven breaks and the owner needs cash to replace it.
In a loan, the pizza shop borrows the money and promises to pay the money back to the lender with interest.
In a merchant cash advance, the pizza shop sells its future receivables to a merchant cash advance company. In exchange for the money to buy that pizza oven, the merchant cash advance company will take 10% of each dollar the pizza shop makes.
If the pizza shop’s sales go down, it will pay less. If the pizza shop’s sales go up, it will pay more. And if the pizza shop is damaged by a hurricane and has to close for repairs, it will pay nothing until it can reopen its doors.
This uncertainty of repayment is why a merchant cash advance is not a loan – the pizza shop in our example, only pays if it sells pizza. Courts have overwhelmingly agreed that a merchant cash advance is not a loan. To quote a recent court decision:
“Receivables purchasing is an accepted form of business transaction, and is not a loan.”
Because a merchant cash advance is not a loan, and there is no fixed payment term, requiring an APR or annual interest rate disclosure would be misleading. For a small business looking for financing, these types of disclosures would only add confusion.
I’m very optimistic that New Jersey can lead the way in providing businesses with disclosures that are helpful – and not misleading.
Thank you.
California Now Requires Mandatory Disclosures on Commercial Finance
October 1, 2018California Governor Jerry Brown has signed SB 1235.
As of Jan 1, 2019, commercial finance companies in California will be required to disclose the following on their contracts:
(1) The total amount of funds provided.
(2) The total dollar cost of the financing.
(3) The term or estimated term.
(4) The method, frequency, and amount of payments.
(5) A description of prepayment policies.
(6) The total cost of the financing expressed as an annualized rate.
To find out if this bill affects your company, contact an attorney.
